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How mobile is capital within the European Union?

Author

Listed:
  • Joeri Gorter

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • A. Parikh

Abstract

The key result of the tax competition literature is that governments set inefficiently low tax rates on income from internationally mobile production factors. Therefore, there is a case for coordination of EU capital income taxes, provided that capital is mobile within the EU. We measure how the international allocation of capital depends on taxation by examining the relation between FDI positions and effective corporate income tax rates. An EU country typically increases its FDI position in another EU country by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the EU mean. This conditionally support the recent efforts of the EU to coordinate capital income taxation. The benefits or costs of tax coordination ultimately depend, however, on whether one views the government as a social welfare maximising agent or tax revenue maximising leviathan.

Suggested Citation

  • Joeri Gorter & A. Parikh, 2000. "How mobile is capital within the European Union?," CPB Research Memorandum 172, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:resmem:172
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    Citations

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    Cited by:

    1. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
    2. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo Group Munich.
    3. Nick Draper & Free Huizinga, 2001. "The effect of corporate taxes on investment and the capital stock," CPB Memorandum 13, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Céline Azémar & Andrew Delios, 2007. "The Tax Sparing Provision Influence: A Credit versus Exempt Investors Analysis," Working Papers 2007_31, Business School - Economics, University of Glasgow.
    5. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo Group Munich.
    6. Buettner, Thiess, 2002. "The impact of taxes and public spending on the location of FDI: evidence from FDI-flows within Europe," ZEW Discussion Papers 02-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Cnossen,Sijbren, 2002. "Tax policy in the european union, A review of issues and options," Research Memorandum 023, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Wolf Wagner & Sylvester Eijffinger, 2008. "Efficiency of capital taxation in an open economy: tax competition versus tax exportation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(6), pages 637-646, December.
    9. Roberta De Santis & Maria Cristina Mercuri & Claudio Vicarelli, 2001. "Taxes and Location of Foreign Direct Investments: an Empirical Analysys for the European Union Countries," ISAE Working Papers 24, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    10. Torben M. Andersen, "undated". "International Integration and the Welfare State," Economics Working Papers 2002-2, Department of Economics and Business Economics, Aarhus University.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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